Agenda item

6.1  The Chair welcomed to the meeting Ian Williams, Group Director Finance and Corporate Resources and Cllr Geoff Taylor, Cabinet Member Finance and Customer Services from London Borough of Hackney, to give an update on the Council’s budget and the wider financial implications following the Government’s Budget and Autumn Statement made early December 2016.

 

6.2  The presentation covered the following areas:

·  Autumn Statement

·  Economic Update

·  Business Rate Update

·  Schools Funding

·  Council Budget Update

·  Pension Fund.

 

6.3  Local Government Settlement was expected to be Thursday 15 December 2016.

 

6.4  The main points from the presentation were:

 

6.4.1  Office of Budget Responsibility analysis of the Autumn Statement has outlined:

·  A reset of the Government’s tax expenditure after a review of the previous Chancellors targets.

·  Weaker outlook for the economy – Brexit uncertainty and lower pound, less investment means slower productivity growth and possibly lower net inward migration.

·  Weaker outlook for public finance – the borrowing was already outstripping income before referendum, weaker growth will hit receipts, especially income tax and there have been some autumn statement fiscal giveaways.

 

6.4.2  The Government targets have change again – all existing targets were breached and replaced, new fiscal mandate made with room to spare and balancing budget next parliament is not anticipated to be easy.

 

6.4.3  An example of the impact on business investment for the council was highlighted to be the purchase of IT equipment from overseas.  This has soared in the last 2 weeks.  This transaction was being accelerated due to rapidly increasing costs.

 

6.4.4  A comparison table displayed showed the forecast in March 2016 and then again November 2016.  This indicated the Gross Domestic Product (GDP) is now expected to drop in 2017/18.

 

6.4.5  The national debt will continue to grow.  This will be a burden for future generations particularly if interest rates start to rise as they are forecast to.

 

6.4.6  Starting to see increases in the Consumer Price Index.

 

6.4.7  In real terms: earning, benefits and state pensions show that people are worse off now than they were 10 years ago and graduates are worse off now than their parents were at this stage.

 

6.4.8  The local Government settlement for 2016/17 to 2019/20 includes:

·  Reductions to local government grant of £6.1 billion by 2019/20.  Although forecasts increase other sources of local government income, overall local government spending will be higher in cash terms by 2019/20 than in 2015/16.

·  £3.5 billion of support for adults social care by 2019/20 through a new social care ‘precept’ and an expanded Better Care Fund to support health and social care integration.

·  Plans to consult on changes to the local government finance system including rebalancing support to local authorities with social care responsibility.

·  Support to help local government become more efficient through new flexibilities, enabling local authorities to spend receipts from assets sales on reform projects.

 

6.4.9  The Borough’s rateable value is increasing but the council will not get to keep all the increase.

 

6.4.10  Local governments expenditure is still broadly planned to follow the path set by the last autumn’s spending review but, OBR is now expecting extra council tax and there to be a draw-down of reserves to boost spending slightly.  There will be a re-set of the underlying ‘needs’ assessments for local government.  There is currently dialogue between the Government’s department Communities and Local Government and Councils, through the Local Government Association (LGA), to see how they can equalise a system that is currently flawed.

 

6.4.11  There is a ‘Fair Funding’ review, this is looking at how local government is funded.  The LGA have produced a report on fair funding.

 

6.4.12  Forecasting can be difficult, however from 2019/20 assuming there is no unexpected downturn it is anticipated the public spend may return to growth in line with GDP.

 

6.4.13  It was highlighted that if the current spend on NHS, Pensions and Social Care continued and was not reviewed this could consume the GDP.

 

6.4.14  The spending review in 2015 announced the introduction of an improved Better Care Fund worth £105 million in 2017/18, £800 million in 2018/19 and £1.5 billion in 2019/20.  After consideration of the consultation responses on the settlement, the Government proposes to maintain the Better Care Fund approach for 2017/18.

 

6.4.15  It is anticipated that Council’s may get freedoms to increase the social care precept by 1%.  It was highlighted the cost of implementing the London living wage for Hackney Council’s homecare contracts was millions of pounds, the proposed freedom to apply the additional 1% rise through the precept will not cover increased costs like these.

 

6.4.16  Non-domestic rateable (NDR) value will be revalued in 2017/18.  This may affect many NDR payers, although is not likely to affect individual councils’ income.  However, it has implications for the starting-point of the post 2019-20 100% retained NDR system.  Government still planning to move to 100% NDR retention by 2019-20 with an end to the Revenue Support Grant (RSG).  The view is the business rates system need a complete reform.  London, Manchester, Liverpool, Cornwall, the West Midlands, Sheffield and the West of England under consideration as ‘pilot areas’ from 2017.  The biggest challenge is how to equalise a system that is based on a number of historic assumption and flawed.  The whole system in its current form is in need of significant reform.  Hackney has seen a 46% increase in RV.  The impact of this on local businesses is not currently easy to predict.

 

6.4.17  A consultation has been released on funding for schools.  There is a proposal to move to a national funding formula for schools.  The Government planned to introduce this in 2017/18, but this has been delayed to 2018/19.  It was highlighted that there are many pressures on a school’s budget, costs, pension and general pay pressures.  The proposals could mean that Hackney is facing a 10% reduction, however the Government has advised in the consultation that no one should face a reduction of more than 3%. 

 

6.4.18  London’s economy is over 50% bigger than Scotland, Wales and Northern Ireland added together.  London pays 30% of the UK taxation.  London needs to be maintained because it is key for the UK’s economy.

 

6.4.19  The Local Government Settlement announcement was expected to be made on Thursday 15^th December 2016. 

 

6.4.20  The council’s budget is currently on track with its saving plans.  Providing the local government settlement does not bring any change for 2017/18 there is a programme of work in place. 

 

6.4.21  In relation to Hackney Council’s Pension fund there has been an increase in overall fund assets and a reduction in fund deficit.

 

6.4.22  In summary the conclusions is local government is still facing considerable uncertainty.

 

6.5  Question, Discussions and Comments

 

(i)  Members enquired what EBRD stood for?

 

The Group Director Finance and Corporate Resources from LBH advised EBRD is European Bank for Reconstruction and Development (EBRD).

 

Hackney Council acted as the administrating authority for the previous Olympic 6 Growth Boroughs arrangement.  Carrying out the role of accountable body for all the EU funding that came in for the growth boroughs. 

 

(ii)  Members enquired about the increase in exchange rate and interest rate and the impact of this on council contracts.

 

The Group Director Finance and Corporate Resources from LBH gave an example in relation to the cost of IT equipment being purchased.  It was noted the purchase was an import and the shift in value of the pound had increased the cost of the purchase.

 

The exchange rate and interest rates will have a major impact on constructions projects for schools and regeneration programmes.  The Council is proposing to take on the exchange rate risks for the large contracts they have agreements on.

 

(iii)  Members enquired about the Council’s current financial position and the RV increase.  Members queried why Hackney had experienced the highest RV increase?

 

The Group Director Finance and Corporate Resources advised the report in agenda was sent to Cabinet in October 2016.  In the current financial year the Council is forecasting a modest overspend.  Within this position there are challenging areas like looked after children, homelessness and pressure on school’s budget relation to high need children.  It was pointed out that the high need element of the education budget has not been increased since 2012.  Overall the Council’s balance sheet has a number of reserves it can deploy to manage additional costs that have arisen or things like slow delivery of savings.  In essence if the Council maintains the same disciplines it is anticipated it can maintain a strong financial position.

 

The Cabinet Member for Finance and Customer Services advised, the increase in property and land prices in the borough have been an advantage and disadvantage.  Pointing out the increase in RV will impact the council’s budget in terms of the business rates it pays.

 

(iv)  Members referred to the interest rate increasing and asked for further explanation of the impact of this.

 

The Group Director Finance and Corporate Resources advised the low interest rates have impacted significantly on the Council’s income generation.  It has been noted by commentators that interest rates have been at an all-time low since 2008. 

 

(v)  Members commented there is uncertainty for the wider economy but the Council’s budget seems to be stable.  Members were keen to understand the implications for the Council in the next few years in terms of the changes to funding etc.  Asking when the Council would experience significant challenges in relation to spending commitments, and asked for officers to predict when this was likely to happen?

 

The Group Director Finance and Corporate Resources informed the Commission the spending changes since the forecasts in 2010/11 was a decrease in income but also an increase in New Homes Bonus.  The Council has an income stream from its property estate e.g. Keltan House and stopped doing some things where one off activities because the Council did not main stream some of the short term funded activity.

 

To cover the cost pressures in the budget (e.g. temporary accommodation) the Council has made provisions for a £4million growth, but officers are not certain this will be sufficient.  The Council is also starting to see increases in the area of looked after children from large cost support cases.  At this point in time the Council cannot predict if it is a trend or just a blip.

 

(vi)  Members enquired when the council will need to address the real issues about resources and look at radical solutions.

 

The Group Director Finance and Corporate Resources advised the Council is doing things like reviewing the modelling for the North London Waste through to 2022 to consider the impacts if the recycling performance does not increase.  This work will show the increasing expenditures, where the gaps are and what the council will need to do to fill the gap.

 

The Cabinet Member for Finance and Customer Services pointed out in relation to TA, LAC and foster carers these are cost pressures that the council has no ability to control.  If the Council removed all the elements of spend that were not within its control and had a steady state.  The Cabinet Member advised in his view with the current plans to make business as usual efficiency savings the council would not encounter significant challenges in the next 2 years.  However after 2 years it was unpredictable.  There are a number of overlapping crisis that will collide to impact on the current situation.

 

(vii)  Members enquired about if the council had discharged its duty by housing a tenant under a long tenancy in the private sector.

 

The Group Director Finance and Corporate Resources informed there is the ability within the lettings policy to discharge into the private sector.  To the officer’s knowledge the Council has only used this power once.